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Tax equity has long played a pivotal role in financing renewable energy projects and facilitating the clean energy transition. Domestic banks have provided the bulk of these dollars, contributing nearly 80% of the necessary tax equity to fund the $20 billion annual solar market. Insurance companies and large tax-paying corporations have also made significant investments.
Since 2023, The Inflation Reduction Act (IRA) has expanded and extended the role of federal tax incentives in support of a range of renewable energy and carbon reduction technologies. To achieve the IRA’s clean energy objectives, many analysts project that the tax equity market must grow from its current $20 billion/year to more than $50 billion annually over the next several years.
In response, domestic banks are increasing their tax equity investments to meet this rising demand. And, while banks will continue to dominate the tax equity market, there are new and expanding opportunities for other sources of solar project financing to meet the unprecedented levels of clean energy growth. Private clients have the opportunity to contribute to tax equity supply and fill the gap.
Domestic banks have invested heavily in clean energy projects because investments are both predictable and have limited downside. Returns come primarily in the form of tax credits and depreciation deductions.
The federal solar tax credit program boasts a proven track record, having served as a reliable driver of clean energy adoption for 40 years. In fact, in the past two decades alone, the availability of federal tax credits has led to $695 billion in private investment in renewable energy projects.
Surveys show banks regard tax equity as a low-risk asset class with appealing risk-adjusted returns. Unlike traditional tax equity investments, tax equity is not speculative in nature and has a more attractive risk profile than traditional equity investments. In a 2023 ACORE survey of active bank tax equity investors, institutions reported that their clean energy investments between 2018 and 2023 had yielded overwhelmingly positive returns through tax credits and depreciation that reduced their tax liability.
Because of its low-risk profile and growing opportunity, renewable tax equity is attracting significant private capital from increasingly diverse sources – including private clients.
By establishing a solar asset ownership LLC to purchase solar projects across the country, private clients can now realize the same tax benefits that institutional investors have come to rely upon as an essential part of their tax strategies.
By redirecting the money you pay in taxes into purchasing solar assets, you may reduce your overall tax bill and generate predictable long-term yield. The strategy offers true tax savings. And that is because when you buy and own solar assets for more than five years, you don’t have to repay the tax savings when you sell.
Demand is growing, and the IRA has locked in tax credits through 2032, ensuring this is a strategy you can rely on to be scalable and repeatable.
We invite you to learn more about whether solar tax equity is a fit for your tax circumstances.
